Bankruptcy is a federal court process that allows individuals and businesses to either eliminate their debts or repay them under a payment plan. The person or business that has filed a bankruptcy case is called the debtor. A creditor is any person or business to whom the debtor owed a debt on the date the bankruptcy case was filed.

Chapter 7 is one type of bankruptcy. It normally governs liquidation of a debtor. Liquidation involves the collection, selling and distribution of the nonexempt property of the debtor and culminates, if the debtor is an individual, in the discharge of the debtor.

Discharge

A bankruptcy discharge releases the debtor from personal liability for certain types of debts. The discharge is a permanent order prohibiting the creditors of the debtor from taking any form of collection action on discharged debts.

If the debtor is an individual, the court enters an order of discharge shortly after the deadline for objections to discharge has passed, unless the debtor has not filed a certificate showing that the debtor has attended a required personal financial management course or there are objections to the discharge.

Objections to Discharge

Sometimes the bankruptcy trustee or a creditor will object to the debtor's discharge claiming the debtor committed certain dishonest acts. If the court finds the objections valid, the debtor can be denied a discharge of all of her debts. Some of the more frequently used grounds for objections to discharge include:

  • The fraudulent transfer or concealment of property
  • Failure to keep or preserve books or records
  • False oath or account
  • Failure to explain loss of assets or insolvency

False Oath or Account

A debtor may be denied a discharge if she knowingly and fraudulently made a false oath or account in connection with a bankruptcy case.

Evidence of Fraudulent Intent

Although actual intent must be shown, a finding of actual intent may be based on circumstantial evidence or on inferences drawn from a course of conduct. This is because a debtor is unlikely to testify that their intent was fraudulent. Thus a court may look to all the surrounding facts and circumstances. For example, a reckless disregard of both the serious nature of the information sought and the necessary attention to detail and accuracy in answering may indicate the necessary fraudulent intent. However, a false statement resulting from ignorance or carelessness is not one that is knowing and fraudulent.

The False Oath or Account Must Be Important

The false oath must have related to an important matter. For example, the subject matter of a false oath is important and can be the basis for a denial of discharge if it is related to the debtor's business transactions, or if it concerns the discovery of assets, business dealings or the existence of the debtor's property. However, if the bankruptcy estate would have no interest in property that was omitted from a schedule, the omission is not important enough to be a ground for denying a discharge. For example, the omission of property of little value or property not subject to the claims of creditors is not considered a matter that is important to the case.

Oath Includes Statements in Schedules and at Examination

The false oath that is a sufficient ground for denying a discharge may be either:

  • A false statement or omission in the debtor's schedules or lists of debts 
  • A false statement by the debtor at an examination during the course of the proceedings

A common example of a false oath is when a debtor declares that the schedule of property is "true and correct" and it appears that the debtor has knowingly and fraudulently omitted assets from it. But if items were omitted by mistake or upon honest advice of the debtor's attorney, to whom the debtor had given all the relevant facts, it will not be considered a ground for denial of discharge.

A debtor may also be denied a discharge for making false oaths at hearings during the case if the statements are knowingly and fraudulently false. This includes statements made by the debtor when being examined at creditors' meetings or at other hearings during the course of the case.

Questions for Your Attorney

  • I forgot to include some assets in my bankruptcy forms but I later notified the court about the omissions - can this be a ground for denial of discharge?
  • I relied on my attorney's advice when entering information about my assets on my bankruptcy petition schedules and the trustee has filed a false account objection against me - is reliance on legal advice a defense?
  • I did not include any assets in my schedules that were of little value but the trustee is claiming the assets were important because the omission prevented him from discovering other assets - can I be denied a discharge for this reason?